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Re: Cash flow Boost - Tax Return Reporting Label

Devotee

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Hi All, Please assit me with the below, 

 

I do know that Cashflow boost is not taxable income , but still then is there a label to report it in the company tax return ? per a certain web article it needs to be incldued under gross income and then reconciled ( substracted) at “7Q Other income not included in assessable income”.

 

Thank u.

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Hi @Joachim ,

 

As the cash flow boosts are non-assessble and non-exempt payments you can choose to not include the amounts anywhere on the company return. 

 

If it helps with reconciliation then you can include the cash flow boosts amounts at 7Q Other income not included in assessable income and 7X Other deductible expenses 

  • Generally, the amounts that are included at 7Q are income for accounting purposes, but not assessable for income tax purposes.
  • Generally, 7X shows amounts, including timing differences, that are an allowable deduction for income tax purposes but are not shown in the accounts or specifically shown at C to P item 7.

 

Thanks for posting,

JasonT

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Hi @Joachim ,

 

As the cash flow boosts are non-assessble and non-exempt payments you can choose to not include the amounts anywhere on the company return. 

 

If it helps with reconciliation then you can include the cash flow boosts amounts at 7Q Other income not included in assessable income and 7X Other deductible expenses 

  • Generally, the amounts that are included at 7Q are income for accounting purposes, but not assessable for income tax purposes.
  • Generally, 7X shows amounts, including timing differences, that are an allowable deduction for income tax purposes but are not shown in the accounts or specifically shown at C to P item 7.

 

Thanks for posting,

JasonT

Devotee

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Hi @JasonT , Thank you very much.

Initiate

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Hi Joachim and Jason,

 

I dont beleive not showing the Cash Flow Payment on the 2020 Company Tax Return is the way to go.

 

The problem is, if you show it on the 2020 Company Tax Return, then through all scenarios I have tested, the Cash Flow Boost (CFB) Payment does result in generating a loss, or an equivalent expense to the business which becomes a loss if you were at break even/loss point in your PNL forecast before the CFB was presented.

 

The reason is that the CFB generated an expense that is unplanned, which either tips forecasted profits or compounds forecasted losses, with subsequently the question becoming, whether the loss can be rolled over to futire years. I have trawled a number of forums and professional bodies and believe there is no right or wrong answer at this point in time given the fluidity of the terms of the CFB component of the Covid-19 Grant.

 

(i.e.

The payment is confirmed as NANE,

It is not like the bushfire grant and therefore has no precedent example;

Its purpose, when created by Treasury, was to create a cash injection into the economy;

By providing the cash flow to businesses that would facilitiate the most prudent economic injection;

Using what the business determines to be the most effective/efficient form of injection;

(i.e. a utility expenses/create assets/retain employees - the biggest impact to keep the business afloat).

 

So that being said, I have tested the following rules for the CFB and Job Keeper, which seems to have the largest consensus from those I have touched base with in the ATO, Finance and Treasury - all recognising that the basis to this problem is that the cash flow boost economic injection has a side effect in that it will generate a loss/cost as an unplanned expense to most businesses - but provide the best vehicle for injecting cash back into the economy.

 

At Item 6Q - Enter the JobKeeper payments received;

At Item 6R - Enter the Cash Flow Boost amount "other income" so as not to double the loss it generates;

At Item 7Q - Enter the Cash Flow Boost amount; and

At Item 13.U - Roll Over the Loss.

 

The other view was to leave the CFB off the company tax form as the ATO did not seek to make visible the unique nature of the payment on the 2020 Company Tax Return and left the tax instruction up to interpretation, but that was a minority group.

 

As to whether the CFB generates a loss to be rolled over, it may be possible to recover the loss in the year it was generated by an offset in profit, or roll the loss over in future years. As to whether any benefit can be derived by payments to shareholders through dividends or employees through salaries/wages, it will not, as it can only be paid out to affiliated bodies as non-franked dividends or salary/wages, meaning, converting the CFB payment into shareholder/employee incomes streams results in tax being paid out by the shareholder as a non-franked dividend or by an employee in PAYG tax on salary/wages.

 

The approach I have outlined does not require, nor do you need to make specifically visible, how the CFB was used. If you choose to pay it out as a non-franked dividend, a salary/wage expense or a business expense (i.e. utility cost to business to the equivalent value of the CFB) it will present itself in those areas of the Company Tax Return where those payments are made visible. It cannot be paid out in a way that it disadvantages the ATO. It cannot gererate a franked dividend as the CFB is non assessable, but as the payment is non-exempt, it will become an unplanned cost and it will generate a loss (i.e. the reason why it is called a NANE). 

 

The reasoning model - use the CFB Dollars as a pooled fund to draw down business utility expenses and derive your salary expenses from your normal gross income pool. Should there be insufficient funds in you normal gross income pool to cover salary/wages, then you will drive the shortfall into the equivalent in losses that you have already highlighed, which you can roll over to future years.

 

This reasoning is in accordance with TR2006-003c3 (i.e. The Tax Office Ruling that appears to be driving the discussion).

 

So now we take a breath...

 

Cheers - KnowledGenX

 

Devotee

Replies 0

Hi @KnowledGenX  sorry I just saw this today. Thank you for the reponse  I found it to be a very informative.

 

Below I have noted some points from I took from your advice.

 

CFB received - 6R

Remove CFB thru reconciliation - 7Q

If  the biz was previously  at breakeven , then present the resulting loss at 13 Q

 

For me this seems to be the best appraoch one can take.Thanks again.